EX-13 6 exhibit13.txt
SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS) FOR THE YEARS ENDED JANUARY 31, 2003 2002 2001 2000 1999 _________ _________ _________ _________ _________ INCOME STATEMENT DATA: Net sales $ 77,826 $ 76,431 $ 76,108 $ 58,644 $ 54,655 Gross profit 14,959 13,137 11,310 10,488 10,374 Operating expenses 10,600 9,549 8,619 7,191 6,451 Operating profit 4,359 3,589 2,691 3,297 3,923 Income before income taxes 3,776 2,816 1,485 2,509 3,222 Net income 2,604 1,970 1,123 1,748 2,080 Earnings per share - Basic* $ .88 $ .67 $ .39 $ .60 $ .72 ========= ========== ========== ========== ========== Earnings per share - Diluted* $ .88 $ .67 $ .38 $ .59 $ .70 ========= ========== ========== ========== ========== Weighted average common shares outstanding*: Basic 2,964,651 2,929,960 2,909,991 2,919,345 2,906,387 Diluted 2,971,854 2,952,082 2,933,877 2,940,794 2,960,012 BALANCE SHEET DATA (at end of year): Working capital $ 17,925 $ 16,766 $ 16,047 $ 15,909 $ 12,403 Total assets 42,823 42,417 38,628 34,770 27,160 Current liabilities 20,934 22,778 20,052 16,551 12,915 Long-term liabilities 529 912 1,981 2,759 465 Stockholders' equity $ 21,359 $ 18,727 $ 16,537 $ 15,405 $ 13,725 __________________ *Adjusted, retroactively, for the 10% stock dividend to shareholders of record on July 31, 2002.
1 CAUTIONARY STATEMENTS ________________________________________________________________________________ THIS REPORT INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. FORWARD-LOOKING STATEMENTS ARE ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACT INCLUDED IN THIS REPORT, INCLUDING, WITHOUT LIMITATION, THE STATEMENTS UNDER THE HEADINGS "BUSINESS", "PROPERTIES", "LEGAL PROCEEDINGS", "MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS", AND "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" REGARDING THE COMPANY'S FINANCIAL POSITION, LIQUIDITY, CAPITAL RESOURCES AND THE COMPANY'S STRATEGIC ALTERNATIVES, FUTURE CAPITAL NEEDS, DEVELOPMENT AND CAPITAL EXPENDITURES (INCLUDING THE AMOUNT AND NATURE THEREOF), FUTURE NET REVENUES, BUSINESS STRATEGIES, COMPETITIVE AND SUPPLY RELATIONSHIPS BETWEEN THE COMPANY AND ITS PRIMARY SUPPLIER, NEW PRODUCTS, GOVERNMENT PURCHASING PATTERNS AND CONTRACTS AND OTHER PLANS AND OBJECTIVES OF MANAGEMENT OF THE COMPANY FOR FUTURE OPERATIONS AND ACTIVITIES. WE MAY USE WORDS SUCH AS "BELIEVE", "ANTICIPATE", "EXPECT", "WILL", "INTEND", "ESTIMATE" AND SIMILAR EXPRESSIONS TO IDENTIFY FORWARD LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS ARE BASED ON CERTAIN ASSUMPTIONS AND ANALYSES MADE BY THE COMPANY IN LIGHT OF ITS EXPERIENCE AND ITS PERCEPTION OF HISTORICAL TRENDS, CURRENT CONDITIONS, EXPECTED FUTURE DEVELOPMENTS AND OTHER FACTORS IT BELIEVES ARE APPROPRIATE UNDER THE CIRCUMSTANCES. THESE STATEMENTS ARE SUBJECT TO A NUMBER OF ASSUMPTIONS, RISKS AND UNCERTAINTIES, AND FACTORS IN THE COMPANY'S OTHER FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"), GENERAL ECONOMIC AND BUSINESS CONDITIONS, THE BUSINESS OPPORTUNITIES THAT MAY BE PRESENTED TO AND PURSUED BY THE COMPANY, CHANGES IN LAW OR REGULATIONS AND OTHER FACTORS, MANY OF WHICH ARE BEYOND THE CONTROL OF THE COMPANY. READERS ARE CAUTIONED THAT THESE STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE, AND THAT ACTUAL RESULTS OR DEVELOPMENTS MAY DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS. ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THESE CAUTIONARY STATEMENTS. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ________________________________________________________________________________ THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MAY INCLUDE FORWARD-LOOKING STATEMENTS WITH RESPECT TO THE COMPANY'S FUTURE FINANCIAL PERFORMANCE. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES, INCLUDING THE FACTORS DESCRIBED ELSEWHERE IN THIS REPORT, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR THOSE CURRENTLY ANTICIPATED. OVERVIEW The Company derives the majority of its revenues from the sale of its Tyvek disposable limited/use garments and secondarily from the sales of its cut and heat resistant gloves, woven reusable garments, heat and fire protective clothing, and chemical suits all to safety and mill supply distributors. CRITICAL ACCOUNTING POLICIES The Company recognizes revenues when title and risk of loss passes to the customer upon shipment. Cost of goods sold includes all direct costs to manufacture the finished product, plus related costs associated with inland or ocean freight on incoming raw materials, customs duty and warehousing, and manufacturing overhead expenses. Selling expenses include all salaries for sales and marketing staffs together with other related expenses such as sales commissions, travel costs, trade shows, advertising and delivery expenses. General and administrative expenses include salaries for executives and administrative and MIS staff, together with related expenses such as travel costs, non-manufacturing facilities costs and consulting and professional fees. 2 RESULT OF OPERATIONS The following table sets forth items in the Company's consolidated statement of operations as a percentage of revenues for the periods indicated. YEARS ENDED JANUARY 31, 2003 2002 2001 ______ ______ ______ Revenues 100.0% 100.0% 100.0% Cost of Goods Sold 80.8 82.8 85.1 Selling, general and administrative expenses 13.6 12.5 11.3 Depreciation and amortization expense .8 .8 .9 Operating profit 5.6 4.7 3.5 Interest expense, net .8 1.1 1.6 Income tax expense 1.5 1.1 .5 Net income 3.3 2.6 1.5 EBITDA margin (1) 6.4 5.7 4.5 __________________ (1) EBITDA (earnings before interest, taxes, depreciation and amortization) margin represents EBITDA expressed as a percentage of revenues. FISCAL YEAR ENDED JANUARY 31, 2003 COMPARED TO FISCAL YEAR ENDED JANUARY 31, 2002 NET SALES. Net sales for the year ended January 31, 2003 increased $1,395,000, (or 1.8%) to $77,826,000 from $76,431,000 reported for the year ended January 31, 2002. The increase in sales was principally attributable to improving economic conditions and to the Company's April 1, 2002 sales price increase. The industry continues to be highly competitive. GROSS PROFIT. Gross profit for the year ended January 31, 2003, increased by $1,822,000, (or 13.9%) to $14,959,000 from $13,137,000 for the year ended January 31, 2002. Gross profit as a percentage of net sales increased to 19.2% for the year ended January 31, 2003 from 17.1% reported for the prior year principally due to the increase in selling prices and additionally by a decrease in labor and overhead costs, partially offset by an increase in inventory reserves. Commencing in March 2002 the company incurred an increase in the price of raw materials, (from DuPont), which had an effect on margins for the remainder of this fiscal year. A reserve for a bond posting and settlement has been recorded at January 31, 2003 in the amount of $48,000, relating to a dispute with Mexican officials, over custom's law for companies in the maquiladora program. The prior year included a reserve for a Canadian customs dispute of which approximately $12,000 remains. The company has presented the information required by the Canadian government and is awaiting their response. It is the Company's belief that no additional reserves are required for these disputes. OPERATING EXPENSES. Operating expenses for the year ended January 31, 2003 increased by $1,052,000 (or 11%) to $10,600,000, (or 12.5%) of net sales from $9,548,000, (or 12.5%) of net sales for the year ended January 31, 2002. Operating expenses increased principally as a result of increased freight costs, insurance costs, computer costs, bad debt expense, professional fees, sales and use taxes, and commission expense. INTEREST EXPENSE. Interest expense for the year ended January 31, 2003 decreased by $239,000 or 27.1% to $643,000 from $882,000 for the year ended January 31, 2002. This decrease was primarily due to a decrease in average borrowings under the Company's credit facility and to decreasing interest rates. INCOME TAX EXPENSE. The effective tax rate for the year ended January 31, 2003 and 2002 of 31.04% and 30.0%, respectively, deviates from the Federal statutory rate of 34.0%, which is primarily attributable to differing foreign tax rates and state income taxes. NET INCOME. As a result of the foregoing, net income increased to $2,604,000 for the year ended January 31, 2003, (or up 32.2%) from net income of $1,970,000 for the year ended January 31, 2002. 3 FISCAL YEAR ENDED JANUARY 31, 2002 COMPARED TO FISCAL YEAR ENDED JANUARY 31, 2001 NET SALES. Net sales for the year ended January 31,2002 increased $323,000 or .42% to $76,431,000 from $76,108,000 for the year ended January 31, 2001. The small increase in sales was principally attributable to recessionary economic conditions, partially offset by a February 1, 2001 price increase in the Company's Tyvek line of products. GROSS PROFIT. Gross profit for the year ended January 31, 2002 increased by $1,827,000, or 16.2% to $13,137,000, or 17.2% of net sales, from $11,310,000, or 14.9% of net sales, for the year ended January 31, 2001. Gross profit as a percentage of sales increased by 2.3% due to increased selling prices, offset by an increase in the cost of raw materials (from a major supplier and competitor, DuPont) in February 2001, and a $150,000 reserve for a customs duty dispute related to the Company's Canadian subsidiary. It is anticipated that the reserve, set up in October 2001, will be adequate to cover future consulting charges and duty payments, if any. OPERATING EXPENSES. Operating expenses for the year ended January 31, 2002 increased by $929,000 or 10.8% to $9,548,000, or 12.5% of net sales, from $8,619,000, or 11.3% of net sales, for the year ended January 31, 2001. This increase was mainly due to higher freight costs, salaries and sales commissions, accrued bonus, insurance expense, and research and development expense. The Company paid $60,000 (during fiscal 2002) in consulting fees for representation to Canadian officials regarding the customs duty dispute mentioned above. INTEREST EXPENSE. Interest expense for the year ended January 31, 2002 decreased by $366,000, or 29.5% to $882,000 from $1,248,000 for the year ended January 31, 2001. This decrease was principally due to a decrease in average borrowings under the Company's credit facility and to decreasing interest rates. OTHER INCOME, Net. Other income, net increased due to the receipt of $73,400 relating to the partial collection of an outstanding judgment. INCOME TAX EXPENSE. The effective tax rate for the year ended January 31, 2002 and 2001 of 30 % and 24.4% respectively, deviates from the Federal statutory rate of 34%, mainly attributable to differing foreign tax rates and exemptions as well as to state income taxes. NET INCOME. As a result of the foregoing, net income for the year ended January 31, 2002, increased by $847,000 to $1,970,000 from $1,123,000 for the year ended January 31, 2001. LIQUIDITY AND CAPITAL RESOURCES ________________________________________________________________________________ LIQUIDITY AND CAPITAL RESOURCES. The Company's working capital is equal to $17,925,000 at January 31, 2003. The Company's primary sources of funds for conducting its business activities have been from cash flow provided by operations and borrowings under its credit facilities. The Company requires liquidity and working capital primarily to fund increases in inventories and accounts receivable associated with sales growth and, to a lesser extent, for capital expenditures. Net cash provided by operating activities was $1,800,000 for the year ended January 31, 2003 and was due primarily to net income from operations of $2,604,000 and a decrease in inventories of $1,059,000 offset by a decrease in accounts payable of $1,913,000 and an increase in accounts receivable of $885,000. Net cash used in financing activities of $353,000 was primarily attributable to reduction in borrowings during the year in connection with a term loan and revolving credit facility. The revolving credit facility permits the Company to borrow up to a maximum of $18 million. The revolving credit agreement expires on July 31, 2003, and has therefore been classified as a short-term liability in the accompanying balance sheet at January 31, 2003. Borrowings under the revolving credit facility amounted to approximately $16,479,000 at January 31, 2003. The maturity date on the five year $3 million term-loan agreement entered into in November 1999 expires on March 31, 2003. The Company believes that cash flow from operations and the expected renewal of the revolving credit facility will be sufficient to meet its currently anticipated operating, capital expenditures and debt service requirements for at least the next 12 months. Historically, the Company has been able to renew its credit facility on acceptable terms, however there can be no assurance that such financing will continue to be available. 4 The Company is in compliance with all covenants of its credit agreement and expects its line will be renewed on July 31, 2003, as it has been since it started dealing with its lender in 1998. The Company will make its last principal and interest payment on its $3 million term loan facility in April 2003, thereby extinguishing all long -term bank debt. Product Liability Claims have been diminimis over the last 10 years and those claims made have all been dismissed, except one that was settled in 1993 and paid by the Company's insurer. In fiscal 2004 the Company has $5 million of product liability insurance with a $10,000 deductible per occurence. Presently only one product liability suit is outstanding which has been sent to non-binding mediation. The Company's total exposure on this suit is $2,500. Suits are generally in the nature of slip and fall injuries or minor chemical or fire burns. All costs of administering and litigating claims is handled by attorneys appointed and paid by the Company's insurer, other than the deductible amount, which has ranged from $2,500 to $10,000 over the last 10 years. As of January 31, 2003, the Company has $1,474,135 in cash and unused credit line of $1,521,000. Long-term liquidity has always been available from commercial banks based upon the Company's tangible net worth and earnings before interest, depreciation, amortization and tax which are presently $21,063,300 and $5,013,902, respectively as at January 31, 2003. Capital spending plans for fiscal 2004 include the last payment of $94,500 on the Company's 53,300 square foot facility in An Qui, China completed in 1998 and $249,200 on its 90,400 square foot facility in Jiazhou, China the later amount to a construction company upon completion in June 2003.Neither of these facilities are encumbered by commercial bank mortgages and thus commercial mortgage loans are available with regard to these real estate assets comprising 366,955 square feet of land area on assignable 50 year leases and 143,752 square feet of 5 year old and new factory facilities. The Company estimates that these facilities could generate $700,000 of cash if mortgaged based upon 50% of their appraised value. New capital equipment expenditures for 2004 are not expected to exceed $450,000. Therefore, current cash levels are 200% of expected payments due this year on long-term assets.. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ________________________________________________________________________________ MARKET RISK The Company is exposed to market risk, including changes in interest rates and currency exchange rates. To manage the volatility relating to these exposures, the Company seeks to limit, to the extent possible its non-U.S. dollar denominated purchases and sales. Foreign exchange risk occurs principally with regard to Canadian subsidiary sales. FOREIGN EXCHANGE RISK MANAGEMENT As a multinational corporation, the Company is exposed to changes in foreign exchange rates. As the Company's non-denominated U.S. dollar international sales grow, exposure to volatility in exchange rates could have an adverse impact on the Company's financial results. The Company's risk from exchange rate changes is presently related to non-dollar denominated sales in Canada. INTEREST RATE RISK The Company is exposed to interest rate change market risk with respect to its credit facility with a financial institution which is priced based upon LIBOR or 30 day commercial paper interest rates. At January 31, 2003, $16,658,000 was outstanding under the term-loan and revolving credit facilities. Changes in the above described interest rates during fiscal 2003 will have a positive or negative effect on the Company's interest expense. Each 1% fluctuation in one or both of the above rates will increase or decrease interest expense for the Company by approximately $167,000. Each 1% fluctuation in interest rates earned would not increase or decrease interest income on these deposits by a significant amount. 5 MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS ________________________________________________________________________________ The Common Stock is listed on the Nasdaq National Market under the symbol "LAKE". The following table sets forth for the periods indicated the high and low sales prices for the Common Stock as reported by the Nasdaq National Market. The Company has a January 31, fiscal year end. Stock prices have been retroactively changed to reflect the 10% stock dividend to shareholders of record July 31, 2002. PRICE RANGE OF COMMON STOCK ________________ HIGH LOW ________________ FISCAL 2003 First Quarter ended April 30, 2002. . . . . . . . . . .$ 9.50 $7.73 Second Quarter ended July 31, 2002 . . . . . . . . . . 10.84 7.64 Third Quarter ended Oct. 31, 2002 . . . . . . . . . . . 9.53 6.10 Fourth Quarter ended January 31, 2003 . . . . . . . . . 8.00 6.67 First Quarter Fiscal 2004 (through April 17, 2003) . . 9.25 6.75 FISCAL 2002 First Quarter ended April 30, 2001. . . . . . . . . . .$ 4.55 $3.73 Second Quarter ended July 31, 2001 . . . . . . . . . . 6.32 3.69 Third Quarter ended October 31, 2001 . . . . . . . . . 12.12 5.35 Fourth Quarter ended January 31, 2002 . . . . . . . . . 11.59 7.51 As of April 17, 2003, there were approximately 89 record holders of shares of Common Stock. There are believed to be in excess of 500 beneficial shareholders in addition to those of record, since over 1.0 million shares are held in "street" name by Cede & Co., a large financial clearinghouse. The Company issued a 10% Stock Dividend payable to holders of record as at July 31, 2002 and plans to issue a 10% Stock Dividend to holders of record on July 31, 2003. This policy may continue on an annual basis, subject to approval by the Company's Board of Directors. The Company feels that over time that a dividend will increase the share float and trading activity in the Company's stock. The Company intends to retain any future earnings, for the operation and expansion of its business. The payment and rate of future cash dividends, if any, will depend upon the Company's earnings, financial condition, capital requirements, contractual restrictions under its agreement with its institutional lender and other factors. 6 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Lakeland Industries, Inc. and Subsidiaries In our opinion, the accompanying consolidated balance sheet and related consolidated statements of income, stockholders' equity and cash flows present fairly, in all material respects, the financial position of Lakeland Industries, Inc. and Subsidiaries at January 31, 2003, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the Schedule II- Valuation and Qualifying Accounts for the year ended January 31, 2003 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As discussed in Note 1, the Company changed the manner in which it accounts for goodwill and other intangible assets upon adoption of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets," on February 1, 2002. /s/ PRICEWATERHOUSECOOPERS LLP ______________________________ Melville, New York April 7, 2003 7 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders Lakeland Industries, Inc. and Subsidiaries We have audited the accompanying consolidated balance sheet of Lakeland Industries, Inc. and Subsidiaries (the "Company") as of January 31, 2002, and the related consolidated statements of income, stockholders' equity and cash flows for each of the two years in the period ended January 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of January 31, 2002, and the consolidated results of their operations and their consolidated cash flows for each of the two years in the period ended January 31, 2002, in conformity with accounting principles generally accepted in the United States of America. We have also audited Schedule II - Valuation and Qualifying Accounts for each of the two years in the period ended January 31, 2002. In our opinion, this schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information therein. /s/ GRANT THORNTON LLP ______________________ GRANT THORNTON LLP Melville, New York April 15, 2002 8
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS January 31, 2003 2002 ___________ ___________ ASSETS Current Assets Cash and cash equivalents $ 1,474,135 $ 1,760,635 Accounts receivable, net of allowance for doubtful accounts of $343,000 and $221,000 at January 31, 2003 and 2002, respectively 10,364,188 9,600,738 Inventories 25,470,044 26,529,150 Prepaid income taxes - 242,029 Deferred income taxes 1,001,133 888,000 Other current assets 549,564 524,274 ___________ ___________ Total current assets 38,859,064 39,544,826 Property, Plant and equipment, net 3,356,835 2,218,459 Other assets, net 606,835 654,200 ___________ ___________ Total Assets $42,822,734 $42,417,485 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts payable $ 3,014,038 $ 4,759,373 Accrued compensation and benefits 586,795 782,168 Other accrued expenses 675,380 208,853 Current portion of long-term debt 16,657,882 17,028,032 ___________ ___________ Total current liabilities 20,934,095 22,778,426 Long-term Debt - 179,104 Pension Liability 514,572 430,001 Deferred Income Taxes 14,643 303,000 ___________ ___________ Total Liabilities 21,463,310 23,690,531 ___________ ___________ Commitments and Contingencies Stockholders' Equity Preferred stock, $.01 par; 1,500,000 shares Authorized; none issued Common stock, $.01 par; 10,000,000 shares authorized; 2,969,107 and 2,684,600 shares issued and outstanding at January 31, 2003 and 2002, respectively 29,691 26,846 Additional paid-in capital 8,762,673 6,360,741 Retained earnings 12,567,060 12,339,367 ___________ ___________ Total Stockholders' Equity 21,359,424 18,726,954 ___________ ___________ Total Liabilities and Stockholders' Equity $42,822,734 $42,417,485 =========== =========== THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
9 LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME Fiscal year ended January 31, 2003 2002 2001 ___________ ___________ ___________ Net sales $77,825,717 $76,431,245 $76,108,038 Cost of goods sold 62,866,550 63,293,922 64,797,943 ___________ ___________ ___________ Gross profit 14,959,167 13,137,323 11,310,095 ___________ ___________ ___________ Operating expenses Selling and shipping 6,337,726 5,414,400 4,825,331 General and administrative 4,262,707 4,133,790 3,793,745 ___________ ___________ ___________ Total operating expenses 10,600,433 9,548,190 8,619,076 ___________ ___________ ___________ Operating profit 4,358,734 3,589,133 2,691,019 ___________ ___________ ___________ Other income (expense) Interest expense (642,595) (881,948) (1,247,708) Interest income 20,245 17,311 26,595 Other income - net 39,555 91,040 15,472 ___________ ___________ ___________ Total other expense (582,795) (773,597) (1,205,641) ___________ ___________ ___________ Income before income taxes 3,775,939 2,815,536 1,485,378 Income tax expense (1,171,881) (846,000) (362,000) ___________ ___________ ___________ Net income $ 2,604,058 $ 1,969,536 $1,123,378 =========== =========== =========== Net income per common share Basic $ .88 $ .67 $ .39 =========== =========== =========== Diluted $ .88 $ .67 $ .38 =========== =========== =========== Weighted average common shares outstanding Basic 2,964,651 2,929,960 2,909,991 =========== =========== =========== Diluted 2,971,854 2,952,082 2,933,877 =========== =========== =========== The accompanying notes are an integral part of these financial statements. 10
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY Fiscal years ended January 31, 2003, 2002 and 2001 Common stock Additional ___________________ paid-in Retained Shares Amount capital earnings Total _________ _______ __________ ___________ ___________ Balance, January 31, 2000 2,644,000 $26,440 $6,132,491 $ 9,246,453 $15,405,384 Net income 1,123,378 1,123,378 Exercise of stock options 2,000 20 7,730 7,750 _________ _______ __________ ___________ ___________ Balance, January 31, 2001 2,646,000 26,460 6,140,221 10,369,831 16,536,512 Net income 1,969,536 1,969,536 Exercise of stock options 38,600 386 125,864 126,250 Stock option income tax benefit 94,656 94,656 _________ _______ __________ ___________ ___________ Balance, January 31, 2002 2,684,600 26,846 6,360,741 12,339,367 18,726,954 Net income 2,604,058 2,604,058 Exercise of stock options 10,100 101 28,311 28,412 10% stock dividend 274,407 2,744 2,373,621 (2,376,365) - _________ _______ __________ ___________ ___________ Balance, January 31, 2003 2,969,107 $29,691 $8,762,673 $12,567,060 $21,359,424 ========= ======= ========== =========== =========== The accompanying notes are an integral part of these financial statements.
11
LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Fiscal year ended January 31, 2003 2002 2001 ____________ ____________ ____________ Cash flows from operating activities Net income $ 2,604,058 $ 1,969,536 $ 1,123,378 Adjustments to reconcile net income to net cash provided by (used in) operating activities Deferred income taxes (401,490) (19,000) 40,000 Depreciation and amortization 595,384 689,969 699,304 Provision for bad debts 122,000 83,965 30,176 Stock option income tax benefit 94,656 (Increase) decrease in operating assets Accounts receivable (885,450) 1,173,585 (2,508,987) Inventories 1,059,106 (3,819,067) (242,688) Prepaid income taxes and other current assets 216,739 355,587 (799,556) Other assets 47,365 (80,832) (187,882) Increase (decrease) in operating liabilities Accounts payable (1,913,434) (1,731,074) 2,247,573 Accrued expenses and other liabilities 355,724 312,638 11,073 ____________ ____________ ____________ Net cash provided by (used in) operating activities 1,800,002 (970,037) 412,391 ____________ ____________ ____________ Cash flows from investing activities Purchases of property and equipment (1,733,759) (831,919) (751,046) ____________ ____________ ____________ Net cash used in investing activities (1,733,759) (831,919) (751,046) ____________ ____________ ____________ Cash flows from financing activities Borrowings from related party to finance construction of a building 168,099 Net (payments) borrowings under credit agreements (549,254) 2,772,513 464,942 Proceeds from exercise of stock options 28,412 126,250 7,750 Deferred financing costs - (120,750) - ____________ ____________ ____________ Net cash (used in) provided by financing activities (352,743) 2,778,013 472,692 ____________ ____________ ____________ Net (decrease) increase in cash and cash equivalents (286,500) 976,057 134,037 Cash and cash equivalents at beginning of year 1,760,635 784,578 650,541 ____________ ____________ ____________ Cash and cash equivalents at end of year $ 1,474,135 $ 1,760,635 $ 784,578 ============ ============ ============ The accompanying notes are an integral part of these financial statements.
12 LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS January 31, 2003, 2002 and 2001 LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS January 31, 2003, 2002 and 2001 1. - BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES ________________________________________________________________________________ BUSINESS Lakeland Industries, Inc. and Subsidiaries (the "Company"), a Delaware corporation, organized in April 1982, is engaged primarily in the manufacture of personal safety protective work clothing. The principal market for the company's products is in the United States. No customer accounted for more than 10% of net sales during the fiscal years ended January 31, 2003, 2002 and 2001. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Laidlaw, Adams & Peck, Inc. and Subsidiary (MeiYang Protective Products Co. Ltd. (a Chinese corporation), Lakeland Protective Wear, Inc. (a Canadian corporation), Weifang Lakeland Safety Products Co., Ltd. (a Chinese corporation), Qing Dao Maytung Healthcare Co., Ltd. (a Chinese corporation, formed during fiscal 2003), Lakeland Industries Europe Ltd. (a British corporation, formed during fiscal 2003) and Lakeland de Mexico S.A. de C.V. (a Mexican corporation). All significant intercompany accounts and transactions have been eliminated. REVENUE RECOGNITION Revenue is recognized when title and risk of loss passes to the customer upon shipment of goods. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined using standard costing, which approximates the first-in, first-out method. PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation and amortization are provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives, on a straight-line basis. Leasehold improvements and leasehold costs are amortized over the term of the lease or service lives of the improvements, whichever is shorter. The costs of additions and improvements which substantially extend the useful life of a particular asset are capitalized. Repair and maintenance costs are charged to expense. GOODWILL Goodwill represents the excess of cost over the fair value of net assets acquired . On an ongoing basis, management reviews the valuation of goodwill to determine possible impairment by considering current operating results and comparing the carrying value to the anticipated undiscounted future cash flows of the related assets. Included in other assets in the accompanying consolidated balance sheets is goodwill aggregating $249,000. 13 LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) January 31, 2003, 2002 and 2001 1.(CONTINUED) STOCK-BASED COMPENSATION The company has adopted the disclosure provisions of SFAS NO. 123, "Accounting for Stock-Based Compensation" (SFAS 123"). The company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its plans and does not recognize compensation expense for its employee stock-based compensation plans. All stock-based awards were fully vested at January 31, 2002 and no new option grants were made during the year ended January 31, 2003. Accordingly, no pro-forma compensation expense based on fair value exists for the year ended January 31, 2003. If the Company had elected to recognize compensation expense based upon the fair value at the date of grant for awards under these plans, consistent with the methodology prescribed by SFAS 123, the effect on the Company's net income and earnings per share as reported would be reduced for the years ended January 31, 2003, 2002 and 2001 to the pro forma amounts indicated below: 2003 2002 2001 __________ __________ __________ Net income As reported $2,604,058 $1,969,536 $1,123,378 Pro forma 2,604,058 1,965,606 1,116,338 Basic earnings per common share As reported $.88 $.67 $.39 Pro forma .88 .67 .38 Diluted earnings per common share As reported $.88 $.67 $.38 Pro forma .88 .67 .38 The fair value of these options was estimated at the date of grant using the Black-Scholes option-pricing model with the following assumptions for the years ended January 31, 2002 and 2001: expected volatility of 57% and 55%, respectively; risk-free interest rate of 5% and 6.3%, respectively; expected dividend yield of 0.0%; ad expected life of six years. No options were granted or vested during the year ended January 31, 2003. TRADE RECEIVABLES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS The Company derives revenue form selling goods manufactured or purchased for resale as a component part of goods manufactured to, primarily, safety distributors, utilizing both in house sales managers and independent sales representatives. The allowance for doubtful accounts generally covers any receivable older than 91 days. SHIPPING AND HANDLING COSTS The company includes shipping and handling fees billed to customers in net sales. Shipping and handling costs associated with inbound freight are included in cost of sales. Shipping and handling costs associated with outbound freight are included in selling and shipping expenses and aggregated approximately $1,835,000, $1,532,000 and $1,381,000 in the fiscal years ended January 31, 2003,2002 and 2001, respectively. RESEARCH AND DEVELOPMENT COSTS Research and development costs are expensed as incurred and included in general and administrative expenses. Research and development expenses aggregated approximately $164,000, $378,000 and $160,000 in the fiscal years ended January 31, 2003, 2002 and 2001, respectively, paid to contractors for development of new raw materials. 14 LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) January 31, 2003, 2002 and 2001 1.(CONTINUED) INCOME TAXES Deferred income taxes are recognized for temporary differences between financial statement and income tax bases of assets and liabilities and loss carryforwards and tax credit carryforwards for which income tax benefits are expected to be realized in future years. A valuation allowance would be established to reduce deferred tax assets if it is more likely than not that all, or some portion of, such deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. EARNINGS PER SHARE Basic earnings per share are based on the weighted average number of common shares outstanding without consideration of potential common shares. Diluted earnings per share are based on the weighted average number of common and potential common shares outstanding. The potential common shares for the years ended January 31, 2003, 2002 and 2001 were 10,371, 20,111 and 21,715, respectively, representing the dilutive effect of stock options. The diluted earnings per share calculation takes into account the shares that may be issued upon exercise of stock options, reduced by shares that may be repurchased with the funds received from the exercise, based on the average price during the fiscal year (as adjusted for the 1 for 10 stock distribution to holders of record July 31, 2002). Options to purchase 1,100, 1,000, and 5,000 shares of the Company's common stock have been excluded from the computation of diluted earnings per share in 2003, 2002 and 2001, respectively, as their inclusion would have been antidilutive. STATEMENT OF CASH FLOWS The Company considers highly liquid temporary cash investments with an original maturity of three months or less to be cash equivalents. Cash equivalents consist of money market funds. The market value of the cash equivalents approximates cost. Foreign denominated cash and cash equivalents were approximately $1,011,000 and $1,371,000 at January 31, 2003 and 2002, respectively. Supplemental cash flow information for the years ended January 31 is as follows: 2003 2002 2001 _________ _________ __________ Interest Paid $ 642,595 $ 881,934 $1,238,448 Income Taxes paid 895,401 606,700 688,142 CONCENTRATION OF CREDIT RISK Financial instruments, which potentially subject the Company to concentration of credit risk, consist principally of trade receivables. Concentration of credit risk with respect to these receivables is generally diversified due to the large number of entities comprising the Company's customer base and their dispersion across geographic areas principally within the United States. The Company routinely addresses the financial strength of its customers and, as a consequence, believes that it's receivable credit risk exposure is limited. FOREIGN OPERATIONS AND FOREIGN CURRENCY TRANSLATION The Company maintains manufacturing operations and uses independent contractors in Mexico and the People's Republic of China. It also maintains a sales and distribution entity located in Canada. The Company is vulnerable to currency risks in these countries. 15 LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) January 31, 2003, 2002 and 2001 1.(CONTINUED) The monetary assets and liabilities of the Company's foreign operations are translated into U.S. dollars at current exchange rates, while nonmonetary items are translated at historical rates. Revenues and expenses are generally translated at average exchange rates for the year. Transaction gains and losses that arise from exchange rate fluctuations on transactions denominated in a currency other than the functional currency are included in the results of operations as incurred and aggregated approximately $95,000, $129,000 and $107,000 for the fiscal years ended January 31, 2003, 2002 and 2001, respectively. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at year-end and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The significant estimates include the allowance for doubtful accounts and inventory reserves. It is reasonably possible that events could occur during the upcoming year that could change such estimates. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's principal financial instrument consists of its outstanding revolving credit facility and term loan. The Company believes that the carrying amount of such debt approximates the fair value as the variable interest rates approximate the current prevailing interest rate. EFFECTS OF RECENT ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFA") No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 modifies the accounting and reporting for acquired intangible assets at the time of acquisition and in subsequent periods. Intangible assets which have finite lives must be amortized over their estimated useful life. Intangible assets with indefinite lives will not be amortized, but evaluated annually for impairment. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001. In fiscal 2003, the Company ceased amortization of goodwill. Had this pronouncement been retroactively applied net income would have increased approximately $12,000 net of tax in 2002 and 2001, respectively, and diluted earnings per share would have increased by less than one cent per share, in 2002 and 2001, respectively. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," that replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." SFAS No. 144 requires that long-lived assets be measured at the lower of carrying amount or fair value, less cost to sell, whether reported in continuing operations or in discontinued operations. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. Adoption of SFAS No. 144 did not have a material impact on the measurement of its long-lived assets. In April 2002, the FASB issued SFAS No. 145 "Rescission of FAS Nos. 4, 44, and 64, Amendment of SFAS No. 13, and Technical Corrections as of April 2002." This Statement amends SFAS No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions as well as other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. SFAS No. 145 is effective for fiscal years beginning after December 31, 2002. The Company does not anticipate that the adoption of SFAS No. 145 will have a material impact on the consolidated financial statements. 16 LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) January 31, 2003, 2002 and 2001 1.(CONTINUED) In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities". This Statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 is effective for fiscal years beginning after December 31, 2002. The Company does not anticipate that the adoption of SFAS No. 146 will have a material impact on the consolidated financial statements. In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based Compensation-Transition and Disclosure" that amends SFAS No. 123 "Accounting for Stock-Based Compensation." SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS No. 148 amends the disclosure requirements of APB Opinion No. 28, "Interim Financial Reporting" and Statement No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reporting results. SFAS No. 148 is effective for fiscal years ending after December 15, 2002. The adoption of SFAS No. 148 except for the disclosure requirements, had no impact on the consolidated financial statements. 2 -INVENTORIES Inventories consist of the following at January 31: 2003 2002 ___________ ___________ Raw materials $ 7,839,144 $ 6,248,990 Work-in-process 1,656,942 3,997,470 Finished goods 15,973,958 16,282,690 $25,470,044 $26,529,150 3 -PROPERTY, PLANT AND EQUIPMENT Property and equipment consist of the following at January 31: Useful life in years 2003 2002 ___________ ____________ ____________ Machinery and equipment 3 - 10 $ 4,815,225 $ 4,484,416 Furniture and fixtures 3 - 10 176,073 175,016 Leasehold improvements Lease term 778,514 671,694 Building ( in China) 20 1,295,074 0 ____________ ____________ 7,064,886 5,331,126 Less accumulated depreciation and amortization (3,708,051) (3,112,667) ____________ ____________ $ 3,356,835 $ 2,218,459 ============ ============ Depreciation expense incurred in fiscal 2003, 2002 and 2001 amounted to $595,383, $591,529 and $624,940, respectively. 17 LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) January 31, 2003, 2002 and 2001 4 -LONG-TERM DEBT Long-term debt consist of the following at January 31: 2003 2002 ___________ ___________ Revolving credit facility $16,478,781 $15,953,432 Term loan 179,101 1,253,704 ___________ ___________ 16,657,882 17,207,136 Less current portion 16,657,882 17,028,032 ___________ ___________ Long-term debt $ -0- $ 179,104 =========== =========== REVOLVING CREDIT FACILITY The Company's agreement with its lending institution, as amended, provides the Company with a revolving line of credit facility of $18 million. This credit facility, which is based on a percentage of eligible accounts receivable and inventory as defined, bears interest at LIBOR plus 2% ( 3.34% at January 31, 2003). The agreement was amended on March 9, 2001 to (i) extend the maturity date to October 31, 2001, (ii) modify the interest rate, and (iii) modify certain financial covenants. The agreement was amended on July 12, 2001 to (i) extend the maturity date to July 31, 2002, (ii) increase the amount available under the revolving line of credit from $14 million to a percentage of eligible accounts receivable and inventory as defined, up to a maximum of $18 million, (iii) modify the interest rate, and (iv) modify a certain financial covenant. The agreement was amended on December 31, 2001 to modify a certain financial covenant and on July 18, 2002 the Agreement was amended to extend the expiration date to July 31, 2003. The maximum amounts borrowed under the credit facility during the fiscal years ended January 31, 2003 and 2002 were $18,000,000 and 17,700,000, respectively, and the average interest rates during the periods were 3.73% and 5.93%, respectively. At January 31, 2003, the Company had approximately $1,521,000 in availability under the agreement. TERM LOAN In November 1999, the Company entered into a $3,000,000, five-year term loan. On March 9, 2001, the Company accelerated the term loan to expire on March 31, 2003. The term loan is payable in monthly installments of $89,550, plus interest payable at the 30-day commercial paper rate plus 2.45% (3.69% at January 31, 2003). The credit facility and term loan are collateralized by substantially all of the assets of the Company and guaranteed by certain of the Company's subsidiaries. The credit facility and term loan contain financial covenants, including, but not limited to, minimum levels of earnings and maintenance of minimum tangible net worth and other certain ratios at all times. The fees incurred by the Company related to the credit facility amounted to $63,000, $106,750 and $52,500 during fiscal 2003, 2002 and 2001, respectively. 5.- STOCKHOLDERS' EQUITY AND STOCK OPTIONS The Nonemployee Directors' Option Plan (the "Directors' Plan") provides for an automatic one-time grant of options to purchase 5,000 shares of common stock to each nonemployee director elected or appointed to the Board of Directors. Under the Directors' Plan, 60,000 shares of common stock have been authorized for issuance. Options are granted at not less than fair market value, become exercisable commencing six months from the date of grant and expire six years from the date of grant. In addition, all nonemployee directors re-elected to the Company's Board of Directors at any annual meeting of the stockholders will automatically be granted additional options to purchase 1,000 shares of common stock on each of such dates. 18 LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) January 31, 2003, 2002 and 2001 5.(CONTINUED) The Company's 1986 Incentive and Nonstatutory Stock Option Plan (the "Plan") provides for the granting of incentive stock options and nonstatutory options. The Plan provides for the grant of options to key employees and independent sales representatives to purchase up to 400,000 shares of the Company's common stock, upon terms and conditions determined by a committee of the Board of Directors, which administers the plan. Options are granted at not less than fair market value (110 percent of fair market value as to incentive stock options granted to ten percent stockholders) and are exercisable over a period not to exceed ten years (five years as to incentive stock options granted to ten percent stockholders). Additional information with respect to the Company's plans for the fiscal years ended January 31, 2003, 2002 and 2001 is summarized as follows:
2003 ________________________________________________ DIRECTORS' PLAN PLAN _______________________ ____________________ WEIGHTED- WEIGHTED- NUMBER AVERAGE NUMBER AVERAGE OF EXERCISE OF EXERCISE SHARES PRICE SHARES PRICE ______ _________ ______ _________ SHARES UNDER OPTION OUTSTANDING AT BEGINNING OF YEAR 9,000 $5.48 13,900 $2.70 10% STOCK DIVIDEND 900 6.55 655 EXERCISED 0 (10,100) ______ _________ _______ _________ OUTSTANDING AND EXERCISABLE AT END OF YEAR 9,900 4.98 4,455 2.05 ====== ========= ======= ========= WEIGHTED-AVERAGE REMAINING CONTRACTUAL LIFE OF OPTIONS OUTSTANDING 1.5 YEARS 1 YEAR 2002 ________________________________________________ Directors' Plan Plan _______________________ ____________________ Weighted- Weighted- Number Average Number Average Of Exercise Of Exercise Shares Price Shares Price ______ _________ ______ _________ Shares under option Outstanding at beginning of year 8,000 $5.53 52,500 $3.06 Granted 1,000 6.69 Exercised (38,600) 3.27 ______ _________ _______ _________ Outstanding and exercisable at end of year 9,000 5.48 13,900 2.70 ====== ========= ======= ========= Weighted-average remaining contractual life of options outstanding 2.7 years 2.5 years Weighted-average fair value per shares of options granted during 2002 $6.69 19 LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) January 31, 2003, 2002 and 2001 5. (CONTINUED) 2001 ________________________________________________ Directors' Plan Plan _______________________ ____________________ Weighted- Weighted- Number Average Number Average Of Exercise Of Exercise Shares Price Shares Price ______ _________ ______ _________ Shares under option Outstanding at beginning of year 8,000 $4.81 52,500 $3.06 Granted 2,000 5.94 Exercised (2,000) 3.88 ______ _________ _______ _________ Outstanding and exercisable at end of year 8,000 5.33 52,500 3.06 ====== ========= ======= ========= Weighted-average remaining contractual life of options outstanding 3.3 years 4 years Weighted-average fair value per shares of options granted during 2001 $5.94
Summarized information about stock options outstanding under the two plans at January 31, 2003 is as follows (as adjusted for the 10% stock dividend): Options outstanding and exercisable _________________________________________ Weighted- Number average Outstanding remaining Weighted- at contractual average Range of January life in exercise exercise prices 31, 2003 years price _______________ ___________ ___________ _________ $2.05 - 2.95 7,755 1.67 $2.50 4.65 - 6.08 5,500 3.83 5.38 9.77 1,100 2.50 9.77 ______ $2.20 14,355 2.67 5.88 ====== 20 LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) January 31, 2003, 2002 and 2001 6. - INCOME TAXES The provision for income taxes is summarized as follows: Year ended January 31, ____________________________________ 2003 2002 2001 __________ ________ ________ Current Federal $1,273,371 $719,000 $189,000 State 163,984 78,000 27,000 Foreign 136,016 68,000 106,000 __________ ________ ________ 1,573,371 865,000 322,000 Deferred (401,490) (19,000) 40,000 __________ ________ ________ $1,171,881 $846,000 $362,000 ========== ======== ======== The following is a reconciliation of the effective income tax rate to the Federal statutory rate: Year ended January 31, ________________________ 2003 2002 2001 ____ ____ ____ Statutory rate 34.0% 34.0% 34.0% State income taxes, net of Federal tax benefit 2.3% 1.6 1.2 Nondeductible expenses - .6 1.1 Taxes on foreign income which differ from the statutory rate (4.7%) (5.6) (12.5) Other (.6%) (.6%) .6 ____ ____ ____ Effective rate 31.0% 30.0% 24.4% ==== ==== ==== The tax effects of temporary differences which give rise to deferred tax assets at January 31, 2003 and 2002 are summarized as follows: January 31, _______________________ 2003 2002 __________ ________ Deferred tax assets Inventories $ 505,680 $418,000 Net operating loss carryforward - foreign subsidiary 123,810 106,000 Accounts receivable 130,340 84,000 Accrued compensation and other 241,303 280,000 __________ ________ Gross deferred tax assets 1,001,133 888,000 __________ ________ Deferred tax liabilities Depreciation and other 14,643 303,000 __________ ________ Gross deferred tax liabilities 14,643 303,000 __________ ________ Net deferred tax asset $ 986,490 $585,000 ========== ======== 21 LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) January 31, 2003, 2002 and 2001 6. (continued) The Company has foreign net operating loss carryforwards for the years ended January 31,2003 and January 31, 2002 of $354,000 and $305,000, respectively. These losses can be carried forward to offset income from foreign operations and will expire in fiscal 2005 through 2012. 7. - BENEFIT PLANS DEFINED BENEFIT PLAN The Company has a frozen defined benefit pension plan that covers former employees of an acquired entity. The Company's funding policy is to contribute annually the recommended amount based on computations made by its consulting actuary. The following table sets forth the plan's funded status for the fiscal year ended January 31: 2003 2002 __________ _________ CHANGE IN BENEFIT OBLIGATION Projected benefit obligation at beginning of year $ 998,058 $991,162 Interest cost 73,635 75,889 Actuarial (gain) loss 130,639 (27,602) Benefits paid (43,244) (41,391) __________ _________ Projected benefit obligation at end of year 1,159,088 998,058 __________ _________ CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year 568,057 508,893 Actual return on plan assets 86,591 89,707 Employer contributions 22,000 10,848 Benefits paid (43,244) (41,391) __________ _________ Fair value of plan assets at end of year 633,404 568,057 __________ _________ FUNDED STATUS Pension Liability 525,684 430,001 Unrecognized net gain 8,971 97,287 Unrecognized net transition liability (20,083) (29,938) __________ _________ Accured pension cost $ 514,572 $497,350 ========== ========= The components of net periodic pension cost for the fiscal years ended January 31 are summarized as follows: 2003 2002 2001 ________ ________ ________ Interest cost $ 73,233 $ 75,889 $ 70,546 Actual return on plan assets (86,591) (89,707) (46,194) Net amortization and deferral 52,178 61,230 17,451 ________ ________ ________ Net periodic pension cost $ 38,820 $ 47,412 $ 41,803 ======== ======== ======== An assumed discount rate of 6.75%, 7.5% and 7.5% was used in determining the actuarial present value of benefit obligations for the years ended January 2002 and 2001, respectively. The expected long-term rate of 31, 2003, return on plan assets was 8% for all periods presented. At January 31, 2003, approximately 60% of the plan's assets was held in mutual funds invested primarily in equity securities, 37% was invested in equity securities and debt instruments and 3% was invested in money market and other instruments. 22 LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) January 31, 2003, 2002 and 2001 7.(CONTINUED) DEFINED CONTRIBUTION PLAN Pursuant to the terms of the Company's 401(k) plan, substantially all U.S. employees over 21 years of age with a minimum period of service are eligible to participate. The 401(k) plan is administered by the Company and provides for voluntary employee contributions ranging from 1% to 15% of the employee's compensation. The Company made discretionary contributions of $88,901, $81,225 and $83,947 in the fiscal years ended January 31, 2003, 2002 and 2001, respectively 8.- MAJOR SUPPLIER The Company purchased approximately 75%, 81% and 77% of its raw materials from one supplier under licensing agreements for the fiscal years ended January 31, 2003, 2002 and 2001, respectively. The Company expects this relationship to continue for the foreseeable future. If required similar raw materials could be purchased from other sources; although, the Company's competitive position in the marketplace could be affected. 9.- COMMITMENTS AND CONTINGENCIES EMPLOYMENT CONTRACTS The Company has employment contracts with four principal officers expiring through January 2006. Such contracts are automatically renewable for two, one year terms unless 30 to 120 days' notice is given by either party. Pursuant to such contracts, the Company is committed to aggregate annual base remuneration of $821,000 and $886,000 for the fiscal years ended January 31, 2004 and 2005. LEASES The Company leases the majority of its premises under various operating leases expiring through fiscal 2005. The leases for the manufacturing facilities (located in Decatur, Alabama) are with two partnerships whose partners are principal officers and stockholders of the Company. One lease expires on August 31, 2004 and requires annual payments of approximately $365,000 plus certain operating expenses and the second lease expires on May 31, 2004 and requires annual payments of approximately $199,000 plus certain operating expenses. The Company also leases one customer service facility pursuant to a one-year lease which expires on March 31, 2003 (renewable at the Company's option for one additional one-year terms), from an officer of the Company. Monthly payments are $1,500. In addition, the Company has several operating leases for machinery and equipment. The Company has a one-year lease with a related partnership for a manufacturing facility in the People's Republic of China. The related lessor is a partnership in which the Company's directors, one officer and three employees hold partnership interest. In addition, during the fiscal year ended January 31, 2002, the Company obtained a 28% interest in this partnership. Rent paid under this agreement aggregated $14,433 for the fiscal year ended January 31, 2002. Total rental under all operating leases is summarized as follows: Total Rentals Gross sublease paid to rental rental related expense income parties _______ ________ _______ Year ended January 31, 2003 $827,187 $611,700 2002 858,429 596,437 2001 890,818 $2,144 630,990 23 LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) January 31, 2003, 2002 and 2001 9.(CONTINUED) Minimum annual rental commitments for the remaining term of the Company's non-cancelable operating leases relating to manufacturing facilities, office space and equipment rentals at January 31, 2002 are summarized as follows: Year ending January 31, 2004 $840,648 2005 439,959 2006 86,589 __________ $1,367,196 ========== Certain leases require additional payments based upon increases in property taxes and other expenses. LITIGATION The Company is involved in various litigation arising during the normal course of business which, in the opinion of the management of the Company, will not have a material effect on the Company's financial position or results of operations. SELF-INSURANCE The Company maintains a self-insurance program for that portion of health care costs not covered by insurance. The company is liable for claims up to defined limits. Self-insurance costs are based upon the aggregate of the liability for reported claims and an estimated liability for claims incurred but not reported. 24 LAKELAND INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) January 31, 2003, 2002 and 2001 10. RELATED PARTY TRANSACTIONS An Qui Holdings Co., L.L.C. ("An Qui"), which consists of certain Officers and Directors of the Company, loaned $168,099 to Qing Dao Maytung Healthcare Co., Ltd. ("Maytung") in the form of an unsecured note bearing simple interest of 9%. This represented the partners capital contirbution for the construction of a manufacturing facility in China, by Maytung. Weifang MeiYang Proyective Products Co., Ltd. ("Meiyang") loaned Maytung $975,411 as of January 31, 2003, also for the construction of Maytung's manufacturing facility in China. This plant will be completed by June 2003 and has been partially occupied since March 2003. During fiscal 2003, Weifang Lakeland Safety Products Co., Ltd. ("Weifang") purchased from An Qui the manufacturing facility that had been built by An Qui and occupied by Weifang. The sale price amounted to $406,185 of which $263,980 had been paid by Weifang to An Qui as of January 31, 2003. The balance to be paid in calendar year 2003. Two of An Qui partners are Chinese citizens, who received an aggregate of $47,705 from the sale. 11. - UNAUDITED QUARTERLY RESULTS OF OPERATIONS (IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS):
Fiscal Year Ended January 31, 2003: 1/31/03 10/31/02 7/31/02 4/30/02 _______ ________ _______ _______ Net Sales $19,684 $18,535 $18,964 $20,643 Cost of Sales(a) 15,993 15,084 15,321 16,469 _______ ________ _______ _______ Gross Profit $ 3,691 $ 3,451 $ 3,643 $ 4,174 ======= ======== ======= ======= Net Income $ 653 $ 496 $ 559 $ 896 ======= ======== ======= ======= Basic and Diluted income per common share*: Basic $ 0.22 $ 0.17 $ 0.19 $ 0.30 ======= ======== ======= ======= Diluted $ 0.22 $ 0.17 $ 0.19 $ 0.30 ======= ======== ======= ======= Fiscal Year Ended January 31, 2002: 1/31/02 10/31/01 7/31/01 4/30/01 _______ ________ _______ _______ Net Sales $19,858 $19,206 $17,932 $19,435 Cost of Sales 16,335 16,202 14,719 16,038 _______ ________ _______ _______ Gross Profit $ 3,523 $ 3,004 $ 3,213 $ 3,397 ======= ======== ======= ======= Net Income $ 367 $ 384 $ 530 $ 689 ======= ======== ======= ======= Basic and Diluted income per common share*: Basic $ 0.12 $ 0.13 $ 0.18 $ 0.24 ======= ======== ======= ======= Diluted $ 0.12 $ 0.13 $ 0.18 $ 0.24 ======= ======== ======= ======= (a) During the fourth quarter of fiscal 2003, the Company recorded an additional inventory reserve of $250,000 related to slow moving and obsolete finished goods inventory. *Adjusted, retroactively, for the 10% stock dividend to shareholders of records on July 31, 2002.
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DIRECTORS: OFFICERS: TRANSFER AGENT: Raymond J. Smith, CHAIRMAN Raymond J. Smith, PRESIDENT Registrar and Transfer Company Christopher J. Ryan Christopher J. Ryan 10 Commerce Drive John J. Collins, Jr. EXECUTIVE VICE PRESIDENT, Cranford, NJ 07016 Eric O. Hallman SECRETARY AND GENERAL COUNSEL NASDAQ SYMBOL: LAKE Walter J. Raleigh James M. McCormick Michael E. Cirenza VICE PRESIDENT AND TREASURER EXECUTIVE OFFICES: Harvey Pride, Jr. VICE PRESIDENT, MANUFACTURING 711-2 Koehler Ave. Ronkonkoma, NY 11779 AUDITORS: (631) 981-9700 PricewaterhouseCoopers LLP SUBSIDIARIES: 401 Broadhollow Road Melville, NY 11747-4862 Lakeland Protective Wear, Inc. Lakeland de Mexico S.A. de C.V. Laidlaw, Adams & Peck, Inc. and Subsidiary (Meiyang Protective Products Co., Ltd.) Weifang Lakeland Safety Products Co., Ltd. Qing Dao Maytung Healthcare Co.,Ltd. Lakeland Industries Europe Ltd.
Exhibits to Lakeland Industries, Inc.'s fiscal 2003 Form 10-K are available to shareholders for a fee equal to Lakeland's cost in furnishing such exhibits, on written request to the Secretary, Lakeland Industries, Inc., 711-2 Koehler Avenue, Ronkonkoma, New York 11779. 26